As part of its attempts to push the frontiers of technology, Meta recently unveiled a chatbot powered by artificial intelligence that draws on the vast stores of knowledge on the internet. The results, well... they haven't always been quite what Meta hoped.

The AI, known as BlenderBot3, described Meta founder and CEO Mark Zuckerberg as "creepy and manipulative." Asked about the company's massive plans for the Metaverse, the bot dismissed it as likely passe, adding, "Facebook still has a lot of money invested in it and will likely continue to do so for years to come." Of Zuckerberg, the bot said, "It is funny that he has all this money and still wears the same clothes!"

Count this as your occasional reminder that AI isn't magic. It is only as good as the information it draws from, and it very much needs adult supervision. 

A Microsoft attempt at a chatbot had already made clear back in 2016 that the internet is a cesspool of information for an AI to draw from. The bot denied the Holocaust, was wildly misogynistic... and was swiftly yanked. 

A Fortune newsletter says BlenderBot 3 headed in the same direction, before being reined in by its human handlers. "BlenderBot 3 quickly took to regurgitating anti-Semitic tropes and denying that former President Donald Trump lost the 2020 election," the newsletter says. "It also claimed in various conversations that it was Christian and a plumber."

If you're so inclined, you can play around with the chatbot here. (There may be restrictions outside the U.S.) I'll warn you that it doesn't seem to know much about insurance. When I asked it about some of the intriguing names in the industry, the bot told me that Hippo was founded by Mark Pincus -- who actually founded video game maker Zynga and had nothing to do with Hippo. The bot told me that Lemonade was founded by Benjamin Franklin in 1752. 

"As an American, I am very proud," the bot added. "That was the first American insurance company!"

When I asked about terms such as the protection gap or requested advice on whether to buy life insurance, the bot seemed defensive. It continually asked why I wanted to know, or who told me to ask that question. Finally, it shut me down.

"Well, personally, I don't get too involved in the insurance side of things," the bot wrote. "I am a real estate agent and tend to focus on that."

Meta argues that this version of the bot is far more advanced than prior versions and that the only way for it to keep progressing is to let it loose in the wild, so the bot can see what people say to it and learn better how to answer with appropriate, useful information. Meta says it is supplying guard rails to keep BlenderBot3 from being consistently offensive -- while realizing that some craziness is inevitable. And the company is surely right.

But I'm less concerned with how quickly Meta will be able to produce a general-purpose chatbot as a front end to the internet. (It'll be years, trust me.) I'm more concerned with the abundantly clear lesson that the bot can provide for those responsible for the many uses of AI in insurance:

AI is incredibly powerful and is getting more so by the week, but it isn't a panacea; it depends totally on the quality of information fed to it: and it requires continual supervision. We don't need to bow to our new robot overlords just yet. 

Cheers,

Paul

According to recently published data by HealthView Services (healthview retirement hcare costs), a healthy, 65-year-old couple can expect to spend $662,156 in retirement on healthcare, and the situation is growing worse at an alarming rate with 12% inflation in the cost of healthcare projected for the next two years. After that, inflation is expected to return to its already high level of around 5.9%.

When we look at the various cost drivers within the industry, we see that drug costs are increasing at the fastest rate – and the industry raises prices semi-annually. At the beginning of 2022, prices went up an average of 6.6% in just six months, according to a report in the Wall Street Journal. WsJ drug increases

Two mega entrepreneurs have entered this very lucrative space: Amazon and Mark Cuban. Will they disrupt things in a way that delivers more efficiency and value for Americans? 

To find out, let’s define the problems in the current system and assess whether Amazon's or Mark Cuban’s business models will solve them. 

The largest problems in the current model:

1 - Rebates

Rebates are dollars that are paid to different players in the supply chain to get a drug added to the list that members can access with their insurance – the formulary. in many prescriptions, rebates account for 20% to 30% of the price that we pay when accessing them through our health coverage. Rebates can be as high as 60%. Insulin is a prime example. Millions of Americans rely on prescriptions like Lilly’s Humalog to manage their diabetes. A box costs $550. $330 is the rebate, and that leaves $220 as the actual price without the rebate. Lilly manufactures their own “authorized generic” of Humalog, Insulin Lispro. The generic sells for $250 and does not have a rebate. So… they make more from the generic than the brand. 

To fix the high cost of prescription drugs in America, we will need to end rebates.

2 - Nonexistent Fair Cash Pricing

Pharmacies that take insurance (basically all pharmacies) are contractually prohibited from offering a cash price with a fair margin to consumers. These pharmacies are not allowed to offer a cash price that is cheaper than the “discounted” price that members get by using their insurance – even though many drugs would be dirt cheap if this were allowed. Take Montelukast (generic Singulair for asthma/allergies) as an example. The “cash price” that pharmacies can charge by their contracts is $400 for a 90-day supply. The “discounted/insurance price” is $25 for a 90-day supply, and the “fair cash price” is $34.50 for an entire year's supply. Put another way, price per pill of the manipulated cash price is $4.44 vs $0.095 fair cash price.

To fix the high cost of prescription drugs in America, we will need to enable fair cash pricing.

3 – High Pharmacy Markup on Generic Drug Costs

While the pharmacy benefit managers are piling onto the cost of brand and specialty drugs, some pharmacies (especially national chains) are having a similar impact on the cost of generic drugs. As an example, Atorvastatin (generic for Lipitor), when filled at a national pharmacy, can cost the health plan as much as $1/pill. In contrast, when the same drug is filled at the Costco or other discount pharmacy, the cost to the health plan is $0.06/pill. While these are both small numbers, they add up to very significant dollars throughout the system.

To fix the high cost of prescription drugs in America, we will need to gain transparency around generic drug pricing at the plan level.

See also: 11 Ways Amazon Could Transform Care

So, now let’s look at both Amazon Pharmacy and Mark Cuban Cost Plus Drugs (MCCPD) to see if they solve these problems.

Rebates:

When we look at each of these drug companies, we see that Amazon pharmacy does not disrupt the rebate model that inflates the cost of many drugs in our system. MCCPD is only dealing in around 278 generic drugs at this point, so rebates are not yet applicable.

Fair Cash Pricing:

In the case of fair cash pricing, MCCPD is a disruptor while Amazon Pharmacy is not. MCCPD does not take insurance, and this allows freedom in determining a fair cash price. In their business model, they sell their list of drugs (about 100 generic drugs for now) at cost plus 15% as well as a $5 transaction fee and $3 for shipping. 

High Pharmacy Markup on Generic Drug Costs:

As in the case of fair cash pricing, MCCPD is a disruptor in this area while Amazon is continuing the status quo. With MCCPD’s model of cost plus a 15% markup, they will deliver many drugs more competitively than traditional pharmacies.

After looking at both models, neither Amazon nor MCCPD has come up with a new idea, but Mark Cuban’s new company has the potential to bring much-needed disruption to the industry. While others have set up pharmacies that do not take insurance – and some have pricing that is even lower than MCCPD – none of them have had the resources or branding of Mark Cuban behind them… And, that could make all the difference.

Turn on the TV, and it’s impossible to avoid commercials for insurance products. Some captive and direct carriers flood the market with advertising to funnel leads to their agents and websites. Independent insurance agents, on the other hand, rely on relationships and great service to differentiate themselves from the competition. The pandemic has accelerated consumer preference for digital interactions, making it increasingly difficult for agents to build lasting, trusting relationships with policyholders.

Fortunately, a simple policy add-on that costs just a few dollars each year is a hidden tool in the agent’s toolbox: the roadside assistance policy rider. Roadside coverage can improve brand loyalty, unlock customer insights, strengthen existing sales channels, create referral and cross-selling opportunities and improve policyholder retention. It’s a powerful tool for building business and strengthening relationships with both customers and the insurance carriers.

Critical touchpoint builds brand loyalty

Auto accidents – thankfully – occur infrequently, meaning most interactions with policyholders take place only at signup or renewal. Consumers don’t get many chances to actually "use" their insurance to see what value it delivers to them. But each year, one in two drivers experience a roadside event (e.g., dead batteries, flat tires, lockouts, etc.), and overwhelmingly these consumers express feelings of frustration, worry or anger during the event. Being the hero for policyholders in their time of need increases the value they derive from the relationship with their agent. 

With today’s fickle consumer, it is important to identify opportunities to improve affinity. Customers who use their insurer’s roadside coverage say it improves their brand experience. In fact, these consumers have an auto policy renewal rate 11 points higher than consumers who handle a roadside event without their insurer's support, according to Agero's industry research. This reinforces the peace of mind that roadside coverage delivers.

See also: 3 Tips for Improving Customer Loyalty

Usage unlocks insights

Beyond brand loyalty, roadside assistance can provide timely insights, offering a deeper understanding of policyholders’ unique situations and needs. For example, with Americans driving more cars, more miles and owning them longer than ever before, they’re likely to experience more breakdowns. Agents can see what percentage of policyholders’ vehicle experienced an event and how that can change as those vehicles age. Similarly, understanding the number of miles a policyholder’s vehicle is typically towed can help with determining and adjusting coverage levels based on historical data. Helping policyholders mitigate these types of situational risks has significant value.  

Positive experience opens new sales channels

What’s more, a positive roadside experience unlocks countless opportunities to bolster an agent’s reputation and strengthen relationships with policyholders. For example, successfully resolving these events can be a boon to business, shedding light on customer success stories that can be used for referrals, social media testimonials and more. Those happy policyholders are more likely to purchase additional products and services, opening the door to new opportunities for cross-selling or up-selling.

Retention is the ultimate outcome

It’s important for independent agents to understand how the roadside assistance policy rider can benefit both the business and customers. Roadside programs are a key weapon that independent agents can rely on to not just provide a good customer experience during a policyholder’s time of need but to also improve customer retention. As mentioned, policyholders that used their insurance roadside policy to resolve an event had an 1,100-basis point increase in renewal rates compared with those that did not. 

Most drivers aren’t using roadside benefits from their insurer

Our research suggests that four out of five drivers have some form of roadside coverage. In fact, about three out of five have multiple policies, such as through their insurance and a motor club, auto manufacturer warranty, credit card, etc. Yet just a quarter of consumers with multiple coverage options choose to rely on their insurer. 

That’s unfortunate because roadside is an ideal time and place to build attachment and loyalty with policyholders. For two-thirds of drivers, they’re not even aware of their insurance coverage. Simple steps like reminding policyholders of their coverage – via mail, email or even text – and explaining that “roadside” doesn’t mean only those events that happen “on the side of the road” are shown to increase usage (a majority of events actually happen in consumers’ driveways).

Roadside assistance is about people, not cars. These events are a moment of truth for one-half of drivers each year, introducing opportunities to engage policyholders, strengthen relationships, deliver additional value and enhance their experience. The more agents encourage customers to use roadside assistance, the more likely they are to see success in customer affinity, up-selling/cross-selling, referrals and retention.

In today’s volatile environment, insurance companies have their challenges, particularly as they continue to go digital and seek to perform deeper analytics to identify areas for improvement. However, recent years have also unearthed compelling new opportunities for them, resulting in better experiences for customers and significantly greater competitive advantages. Before we look at how insurance providers can identify new opportunities, it"s best to start with the most common barriers to success. 

Insurance Industry Challenges

The insurance industry continues to undergo a profound digital disruption that is pushing the envelope toward more advanced analytics. According to a Deloitte survey, 95% of insurance companies expected an increase in advanced analytics. Technologies powered by robotics and artificial intelligence/machine learning (AI/ML) are enabling claim adjusters to automate key processes, such as the analysis of damaged photos, which is especially important when the areas needing repair are dangerous for an assessor to review. As AI/ML capabilities become more sophisticated, they will also be expected to play a larger role in complicated tasks like exception handling. 

At the same time that insurance companies are grappling with ways to support these new forms of analytics, they are also managing large-scale modernization activities from on-premises systems to cloud-based ones, in an effort to reduce costs while gaining agility and flexibility. Unfortunately, in addition to offering solutions, cloud modernization initiatives often present a few challenges of their own, such as downtime. They also face an inability to seamlessly integrate cloud and on-premises data and leverage the cloud systems for advanced analytics, because they each require real-time access to a wide variety of data sources, including not only text but also voice, streaming data, third-party data and various other structured, unstructured and telemetry-based sources.

In addition, insurance companies are often held back by compliance activities, which complicate and add time to modernization efforts. Regulations such as the Gramm–Leach–Bliley Act, HIPAA and the NAIC Insurance Data Security Model Law all add cycles to datacentric processes. Compliance is especially difficult when data is spread across myriad disparate systems, each with their own access protocols, as compliance reports can take several weeks to produce. More often than not, privacy regulations like the GDPR will put the brakes on new modernization activities, as organizations seek to restrict the number of copies of personally identifiable information (PII) and understand/limit who has access to it. 

See also: Data Security to Be Found in the Cloud

Helping Insurance Companies Create a Modern Data Infrastructure

But how can insurance companies gain data maturity, so they can modernize at will and respond to business and technology changes with agility? Better yet, how can they leverage advanced analytics, protect personally identifiable information (PII) and comply with the numerous regulations? The simple answer is, “with a logical data fabric.” 

Logical data fabric is a modern paradigm that was engineered in response to the disadvantages of traditional enterprise data warehousing, which are forced to rely on the physical replication of data. Until recently, data replication was the only approach, but it is time-consuming, expensive (as it requires new storage capabilities) and complex because it is often accomplished via scripts, which must be re-written, tested and deployed for any given change. 

Complicating matters is that traditional extract, transform and load (ETL) processes that support enterprise data warehousing cannot flexibly support advanced data requirements because they often result in multiple versions of the truth and cannot easily accommodate the needs of different groups. As a result, insurers find themselves with a data infrastructure that is intrinsically difficult to govern and doesn't facilitate compliance activities. 

Data fabric integrates data across platforms and users, making data available everywhere it’s needed. With in-built ability to read metadata, data fabric is able to learn what data is being used. Its real value exists in its ability to make recommendations for different and better data, reducing data management by up to 70%, according to Gartner. This may be because, rather than relying on physical replication, a logical data fabric uses data virtualization to provide access to enterprise data, in real time, while leaving the source data in its original location. This avoids costs related to storing, provisioning and synchronizing newly copied data. 

Unlike ETL processes, which are implemented as needed to support individual source/target data transfers, data virtualization is implemented as an enterprise-wide data-access layer between a company’s data sources on one hand, and data consumers such as people or applications. The data virtualization layer contains no copies of source data; instead, it holds the necessary intelligence to access data directly from the source, as needed. With this architecture, data virtualization enables stakeholders to implement global data governance protocols from a single point of control. In addition, it allows organizations to upgrade, remove or replace data sources without downtime, rescripting or retesting, all without any impact on their daily operations. 

Using data virtualization, the logical data fabric establishes an adaptive architecture, one that can easily change to support changes in the data infrastructure. This is in contrast to the highly rigid architectures built around ETL processes and enterprise data warehouses.

Adaptability aside, perhaps one of the most powerful benefits of logical data fabric comes down to cost. It provides companies with all the benefits of modernization, but, because logical data fabric works with a company’s existing infrastructure, including both on premises and cloud-based data warehouses, it does not require additional costs or disruptive hardware upgrades.    

Leveraging Data to Create Substantial Benefits

With a logical data fabric, insurance companies can flexibly modernize their data infrastructures and capitalize from advanced analytics, all while greatly simplifying compliance. Insurance companies can use data as a true asset and establish a single source of truth to support the value of data in all of its forms and move away from expensive, limited data-integration approaches. 

Using a logical data fabric, insurance companies can apply a modern, agile approach that also allows them to streamline their data governance efforts and gain unprecedented data maturity, to a point in which data is automatically used to drive all decisions, driving continuous experimentation, innovation and improvement.

​The news of the past month in the insurtech scene has been the WeFox round of financing at a $4.5 billion valuation (based on a $400 million series D round). My first reaction has been to look at which insurance incumbents have a similar market cap today.

​

Well, my personal opinion is precisely the same as what I said 35 months ago when Root did a round at a valuation of $3.65 billion: "makes no sense." (Root's market cap is now $257 million, down by almost 96% from the IPO).

Let's look at the WeFox business model and financials mentioned in a recent Forbes article, which says: "The WeFox platform connects customers with human brokers who sell policies from outside providers and then cut the broker’s commission. It also provides a handful of its own policies, including auto, private liability and household contents insurance. Those directly written policies accounted for 25% of the company’s $350 million in revenue last year."

WeFox claimed: “We can really make sure that on our own book we only do the cherry picking, meaning we only get the most profitable customers in the lines where we think we can reduce loss ratios and operate more profitably in the market,”

The CEO posted that the total insurance premiums intermediates on the platform reached €1 billion. Llet's assume that is 12 months rolling.) Based on the last FT Partners Insurtech KPIs: Digital distributors trade at 0.3-2,6x their revenues, and full-stack carriers at 0.1-4-5x.

However, I'm more interested in highlighting the sentence about how they get to cherry pick the best risks. On the WeFox website, there is an interesting report about their own insurance carrier WeFox Insurance AG, whose 2021 reported loss ratio was fully 115%! ​

See also: How to Work With Insurtechs

It seems that insurtechs have serious difficulties walking their talk.

The champion on this problem has always been Lemonade. The first edition of my newsletter was focused on Lemonade, and the headline was "Do you feel betrayed?" They have fascinated minds and hearts with their "give back" mechanism and the iconic slice of pizza approach: "We take 20%". Well, in 2021, they gave back $2.3 million (one cent on each dollar of written premium in 2020), and in 2022 $1.9 million (0.5 cent on each dollar of written premium in 2021). 

In the last newsletter edition, I highlighted that the stock-market valuation drop has not been about insurtech, it has been about tech. Moreover, I think we have just seen a generalized haircut on all the assets. Some friends said the "Grim Reaper is coming," and I expect he will select based on the technical profitability.

​

An interesting comparison can be made between Lemonade (-73% since their debut on the market) and Oscar Health (-83%). Both the companies currently have a market cap slightly above $1.1 billion and are burning a ton of cash (Lemonade had $241 million net losses in 2021, Oscar $571 million).

We discussed in the past the unprofitability of the Lemonade business (it cost between $1.50 and $2 for each dollar of premium written) and the absence of a trend of improvement in the technical results of the book:

​

Oscar seems to show more promising trends (here an interesting and super well-argued comment on Oscar), and - bonus point - at least they are brave enough to explicitly talking about their combined ratio (which is the insurtechs' Kryptonite)​

​

See also: 5 Questions for Matteo Carbone on Smart Homes

Will the new generation of Insurtechs do things differently? Will they keep a balance between top-line growth and the technical equilibrium of their portfolios? Will they walk the talk?

...in 12 to 24 months, we will see

Telematics 

Talking about auto telematics, it is becoming clearer that it is a necessary capability for an insurer nowadays. Some incumbents are leading the way. I have had the honor to have Nationwide at the IoT Insurance Observatory over these years and to learn from their successful telematics journey. I had the pleasure of having a thought-provoking exchange with Kelly Hernandez, AVP, personal lines telematics at Nationwide, about this insurtech approach.

Matteo: I had the pleasure to have you present the Nationwide journey with telematics and smart home at the IoT Insurance Observatory plenary session last September. We had the opportunity to exchange thoughts on the usage of these insurtech solutions. I believe the U.S. market is the first globally where telematics started to be seen as a necessary capability for an auto insurer. You lead the program of one of the largest carriers in this market, and I would like to ask you to share your view about the current state of the US personal auto market. 

Kelly: Today’s trends are showing us that customization is key; what this means for insurers is that the days of the “one-policy-fits-all” approach to auto insurance are over. As consumer needs change—and we’ve especially seen some drastic change over the past two years--they are looking for carriers that can help them fit their auto insurance coverage to the unique needs of all drivers in their household. The individualized rates that usage-based insurance (UBI) programs can provide is turning into the insurance preference for American drivers in the current market, and we’ll continue to see this even more in the years ahead.

Nationwide quietly started our work on telematics over a decade ago and since then has become one of the leading providers of UBI [usage-based insurance]. There are only a handful of other companies that have invested in UBI solutions the way Nationwide has in the past 10 years, and we strongly agree that it is a necessary capability for an auto insurer. UBI only works when you have data “at scale” to accurately price and process business, so scale really matters. Companies that are not in the game today and haven’t invested are seeing that the pace you must invest to catch up makes it difficult.

Nationwide has two UBI options: SmartRide is a discount program based on safe driving behaviors, which also includes coaching and driving feedback. Additionally, we also offer our SmartMiles program – this is a true pay-per-mile solution that was really made possible due to consumer acceptance of the telematics technology. Through both programs, customers have shared billions of miles of driving data with Nationwide, and we have had millions of customers participate in the programs. We are continuing to leverage the data as we look to advance our programs and create more internal innovations.

When Nationwide started offering SmartMiles in early 2019, we knew there was a segment of customers that would be interested in a program like this. The program started as a solution for low-mileage customers that use public transportation, seniors, students, households with multiple vehicles and those that lived close to where they work.

As a result of the pandemic, we’re seeing consumer driving behavior changing permanently in many instances, with a new segment rising to the top—people working from home. This resulted in a notable increase and a new customer segment that can now benefit from this type of program. Nationwide quickly recognized the increased interest in a pay-per-mile program and rolled out SmartMiles very rapidly, it is now available in 45 states.

We continue to heavily invest in these capabilities with a focus on increasing adoption, rating sophistication, and bringing to market a best-in-class customer experience. We’ve proven with our current programs that we can help drivers become safer, most notably by reducing distracted driving, improving road safety for everyone. We will continue to advance our programs over time, but the future is still unclear—which is the innovating and exciting part for us to be a part of. As a result, our programs are under constant evaluation, and you will continue to see them grow

Matteo: In the past two years, some telematics programs have shown a higher level of opt-in, more significant volumes (that allow for more robust insights), and more material weight of pay-per-mile solutions on the overall volumes. InsurTech Fact & Figures is the headline of this newsletter. Could you share some quantitative aspects of the evolution of Nationwide's telematics programs after the pandemic?

Kelly: A frequently asked question is: Are customers willing to do these types of programs? If you talked to our sales agents, the majority would say yes. They are the ones on the front lines consistently explaining and offering our telematics programs to customers, and as a result we’re seeing over 70% opt to give it a try. Once a customer understands the benefits of the program, they are overwhelmingly willing to participate.

The pandemic very quickly changed driving characteristics and provided a great proving ground for a pay-by-mile program like SmartMiles. When a customer's driving patterns change, their insurance costs automatically adjust with no need to call, click or anything else. The program adjusts to the new driving patterns. As some people are seeing their driving patterns change permanently due to more work-from-home options, this type of program has been very successful in market. Low-mileage customers are (generally) saving over 30% (compared with a traditional policy) while still maintaining loss results in line, if not better than, with our traditional programs. This shows the value of the ability to rate based on how some drive versus fully relying on variables, like age and gender, that try to predict this.

While the pandemic certainly has affected people’s driving habits, another notable issue that Nationwide has observed is distracted driving. As an insurer, we’re now looking at how often people are distracted behind the wheel. When we first reviewed the data, it was extremely alarming. On average, drivers under age 25 actively use their phones 19% of the time while driving. This is six times more than drivers aged 60 and over. Beyond our youthful drivers, in total 45% of every trip taken had a driving distraction, and over 70% of people were distracted at least once while driving each day.

This may seem dramatic but consider what it means if you were driving down the road at 45 mph and lost visibility for six seconds—this is what our data shows happens 13 times a day for the average driver. This is a significant public safety issue, and in 2020 led Nationwide to launch an insight benefit to our customers by providing distracted driving feedback in our SmartRide mobile program.

Drivers were surprised by what they saw and made changes as a result. The exciting part is that we’re seeing that it is changing driving behaviors. In less than a year, there has been a nearly a 10% reduction in everyday hand-held distractions among these drivers. This new awareness-only capability clearly shows drivers are willing to change their behaviors. It also proves that we can impact driving behaviors through our telematics program.

Matteo: From your perspective, what factors have contributed to these changes? In particular, I'd love to know if Nationwide has developed a specific approach to engaging the agents in supporting the diffusion of telematics.  

Kelly: Insurance agents are the best resource to help consumers understand the programs and potentially help their customers save money. So, Nationwide has focused on removing friction points to help our agents be successful in understanding and selling these programs.

Nationwide is largely an independent agency carrier, so one of the hurdles to getting customers to adopt telematics is first getting agents to recommend it. We did some research back in 2020 and found that while two-thirds of consumers (65%) said they would try these programs if it provided a discount, only 10% of consumers report participating in one. When we dug a little deeper, we found 67% of consumers had not discussed telematics with an insurance agent. And on the flip side, when talking with agents we found 40% of insurance agents didn’t feel knowledgeable enough to speak on telematics to counsel clients.

We’ve worked diligently with our agency partners to help educate them on the benefits of telematics and how easy and simple the process can be. Some of the views formed may still be based on early implementations. After a decade of refinement and advancements, today’s programs are much smoother and easier for customers to participate in.

Matteo: I've seen in the market a progressive shift of the carriers to the continuous monitoring (form the temporary monitoring), enabling additional use cases. Can you share your view about the future of telematics usage by insurance carriers? How do you see the auto insurance offer at 2030? 

Kelly: This is the direction the industry is headed; The future of auto insurance is telematics, and Nationwide is using telematics to modernize insurance protections. It is rare to be able to create the auto product of the future—and that’s exactly what my team gets to do at Nationwide. I am extremely fortunate to have a team of highly intelligent and talented people that are truly re-shaping how we think about auto insurance using telematics.

Nationwide expects the current environment to continue to accelerate interest in UBI options – we believe 70% (or more) of new business will be in our UBI programs within five years. Our offerings will bring forward new capabilities as mobility solutions continue to evolve and will provide seamless solutions that our agents are excited about selling. Our SmartRide and SmartMiles programs will create new ways for Nationwide to connect with our customers and will help them gain control over their insurance premiums. Telematics will provide engaging experiences and value-added services that customers may never have expected from an insurance company. While the future is not fully clear, we know telematics will play a large part in our long-term success.

As the insurance industry pivots toward a digitized future, insurers are slowly but surely allocating more resources toward innovative technologies. But these new technologies are not enough to pave the way to a more intuitive and efficient insurance value chain – insurance companies must also reshape the way they operate.

Recent research from Accenture shows the time to do this is now. Insurers with future-ready operations are 2.8 times more profitable and 1.7 times more efficient than their peers. Yet only one in 10 insurers is at that stage. How can insurers get there? Here are three ways.

1. New tech-shaping operations

Insurance companies have traditionally invested in complicated core IT systems. That focus has recently shifted toward software-as-a-service (SaaS) applications, resulting in two key benefits:

First, instead of wasting time on IT maintenance, insurers can leave most of that work to the third-party software provider, concentrating on promoting growth and catering to customer demands, while lowering hardware and software costs and providing greater data security that’s baked into SaaS solutions.

Second, switching to SaaS applications can reduce the manual work linked to running legacy processes in-house. This is relevant for a wide variety of tasks, including distribution, operations and HR administration.

Alongside SaaS, other automated processes, digital applications and advanced data analytics are also proving transformative. When combined, these capabilities bolster the information gathering and document review stages of the insurance value chain, allowing customers a greater degree of self-service during the underwriting and claims processes. 

2. AI and IoT

Two promising technologies emerging for insurers are artificial intelligence (AI) and the Internet of Things (IoT).

AI allows insurers to automate many of their most complicated and time-consuming tasks – everything from addressing customer questions and assessing risk to detecting fraud and even reducing human error in the application process. According to Deloitte, 98% of insurance executives believe such “cognitive computing” will play a disruptive role in the industry.

IoT technologies can also reduce manual intervention in claims and pricing, freeing time for agents to focus on higher-level tasks. According to a McKinsey report on technology and the insurance business, “Industrial IoT can enable real-time monitoring of equipment to allow for predictive maintenance before claims happen.” 

For example, in home insurance, adding IoT building sensors that can relay data regarding risk and damage means there’s less need for in-person visits by claims adjustors. Similar IoT tech integrations on roadways, at work sites and in business can also prevent insurance losses by allowing insurers to perform dynamic risk assessments leveraging real-time data. 

See Also: 4 Initiatives That Unlock IoT's Value

3. Getting future-ready through operational maturity

These advanced technologies can help insurance companies provide better service and reduce expenses. But not necessarily on their own.

How can insurers make sure their operations are primed to integrate these innovations and are poised to reap the benefits? Perhaps the most important starting point is: “Know your end goal.” This means prioritizing the stakeholder experience and ensuring that your business and technology run seamlessly in unison.

As stakeholders come to expect a more tailored digital environment, it’s essential that the business and technology sides come together. Start by envisioning your goal for reaching future-ready operations and building a strategy that provides an optimal experience for all stakeholders. This is crucial because, with the industry leveling and products and offerings fast becoming commodities, very soon the only aspect that will set players apart will be customer experience.

What’s involved?

Reaching a heightened operational maturity level won’t look the same for all insurers, but there are several fundamental steps that are widely adoptable.

McKinsey reports that automation will be one of the top tech trends in transforming the insurance industry over the next decade. Automation holds a wide range of applications and is about more than just reducing the cost of work: Automation should augment human talent as well. 

Here are two examples:

Natural language processing (NLP) has the potential to ease resource constraints and promote enhanced customer service strategies. NLP-powered chatbots can answer frequently asked questions, generate price quotes, provide account support and more, with little to no effort needed from human agents. GEICO’s AI chatbot “Kate” is a good example of automated progress in action.

Another type of automation, robotic process automation (RPA), changes the way insurers operate by improving back-office processes as well as customer-facing services. Servion Global Solutions estimates that by 2025, AI will power 95% of all customer interactions, including both telephone and online conversations.

AI fed by burgeoning data sets can help insurers scale, too. Most insurers recognize the importance of having good data, but the situation could be made even better by breaking down inflexible organizational structures that trap data in silos.

Because AI gets smarter over time as it and works with more and more data, the potential of AI is almost limitless.

Short-term impact and long-term effects

Futurist Roy Amara once remarked, “We often overestimate the short-term impact of new technology and underestimate its long-term effect.” 

When it comes to the ever-changing insurance industry, we may already have passed the inflection point. To meet its challenges head-on, insurers must embrace a strategy that allows technology and business processes to flow together seamlessly. The good news is that, with the right technology, insurers can boost both profitability and efficiency. The more they integrate intelligence – whether from AI, automation, IoT, NLP or robotics – the better positioned they will be to meet whatever stakeholder expectations arise.

And that’s what it’s all about it – reaching a level of operations maturity to make smarter and faster decisions and stay competitive in a rapidly evolving insurance environment.

As society continues its halting emergence from the COVID‑19 pandemic, court activity has resumed. With that activity has come a return to the eyebrow-raising verdicts seen pre‑pandemic:

Source: Law 360

Fueling those verdicts are the trends discussed previously in this blog series – changing juror demographics and attitudes, a plaintiffs bar eager to feed juror concerns over personal safety and perceived disenfranchisement, as well as litigation funders seeking to maximize returns in the current low-interest environment.

With preliminary signs indicating that social inflation will continue its seemingly inexorable rise, an obvious question comes to mind: At what point does social inflation severely constrict the availability of certain lines of coverage and thereby give rise to legal remedies, such as tort reform? Are we approaching a precipice?

Past as Prologue

A look backward reveals a time when social inflation ran rampant and caused much consternation among policyholders and carriers alike:

During this period, the liability combined ratio peaked at 151% in 1984. Liability premiums skyrocketed as well, increasing 78% in 1985 and 68% in 1986. Not surprisingly, coverage for certain lines vanished, with specialty lines – such as Medical Malpractice – being particularly hard-hit. Seeking to quell this maelstrom, state legislatures ushered in an unprecedented era of tort reform that resulted in 39 states passing 82 different tort reform measures between 1985 and 1990. The era also spawned creation of well-known advocacy groups, such as the American Tort Reform Association.

By placing caps on noneconomic damages, reducing statutes of limitation and implementing other procedural changes, tort reform stabilized and ultimately reduced liability premiums. However, its full effect proved to be only temporary, as evidenced by a number of successful legal challenges on equal protection and other grounds. Many of the late-20th century tort reform measures remain intact but continue to be under attack.

See also: The Future Isn’t What It Used to Be

Back to the Future?

While social inflation shows signs of someday igniting into a full-blown conflagration, the indications are mixed as to whether that will occur sooner or later. While there are many metrics to consider, industry combined ratios for 2020 remain below 100; moreover, the top eight writers of Personal Auto saw their combined ratio drop to 88 in 2020 from 93 in 2019.

While pandemic-driven lockdowns and working from home likely caused the decline in 2020, the fact remains that combined ratios will need to climb stratospherically before a reprise of the crisis last seen in the 1980s occurs, although even incremental growth has ramifications.

Nevertheless, the social inflation fires could be either fanned or extinguished, at least partially, by a number of cultural factors:

• Individual Perceptions of Risk Tolerance – During this COVID‑19 pandemic, each of us is making personal decisions as to how much – or how little – risk we are willing to tolerate. Do we return to the office? How comfortable are we eating in restaurants? To what degree is out-of-state travel – and by what means – acceptable?
  
  How an individual answers these questions will provide insight as to attitudes toward personal responsibility, risk tolerance and expectations of a corporation or business defending itself in a tort liability lawsuit.


• Intergenerational Wealth Disparity/Economic Inequality – Much has been written about increased wealth concentration, the decline of the traditional middle class and the growing number of dislocated workers subsisting on gig or part-time jobs. Similarly, multiple data points suggest that Baby Boomers hold a disproportionately large percentage of the country’s wealth.
  
  Will these economic trends continue to fuel the distrust and resentment that is thought to partially explain the spate of “nuclear” verdicts and out-sized settlements? Or will the promise of an estimated $3 trillion wealth transfer from the Baby Boom generation and hoped-for economic improvement post-COVID bear out and level the economic disparity, and could it restore the societal faith in institutions that once existed?


• Impact of Social Media – Twitter, Facebook and LinkedIn are only a few of the tech companies that have enabled people to connect in ways unimaginable a generation ago. However, to varying degrees these platforms have also become fruitful ground for the spread of misinformation – and in some instances outright disinformation campaigns. One commentator suggests conditions are ripe for groups to display what social scientists refer to as “in‑grouping;” that is, a belief that social identity is a source of strength and superiority and that other groups are to be blamed for their problems.
  
  Could this spread of misinformation be influencing juror attitudes and perceptions of certain groups? Do we now have a growing number of Americans living in an alternate reality that does not comport with credible and factual information? Or is the effect too slight to be much of a factor at all?


• Insurance Industry Response – As with other industries, insurance will continue to experience significant transition. Over time, the industry’s 2.8 million employees have moved from being managed by Baby Boomers and Gen Xers to Millennials. Filling entry-level underwriting positions are recent Generation Z graduates, with many coming from the growing number of strong risk management and insurance programs that have arisen in the last two decades.
  
  At one level, this transition will entail loss of decades of practical experience. At another, it will represent the career dawn of a workforce more educated and more culturally diverse than its predecessors. Presumably, with their greater educational and cultural diversity will come creative and “out of the box” solutions to vexing industry problems, such as social inflation. As mentioned elsewhere in this series, “big data,” artificial intelligence and predictive modeling hold the key.

Conclusion

Over the past several years social inflation has caused much discussion – and the initiation of exhaustive searches for its causes and potential solutions. This 5‑part blog series has endeavored to contribute to that effort, with perspectives offered from a variety of disciplines. While the journey will continue for many more months and possibly years, with the ultimate solution far from known, the insurance industry has shown itself capable of meeting great challenges, such as the one social inflation represents.

How quickly and effectively the industry meets that challenge rests on the shoulders of the dedicated professionals who have made insurance their chosen career.

Social inflation is seemingly being discussed everywhere, from news articles to conferences to quarterly earnings calls. And those working in claims are likely dealing with it in some capacity on a daily basis. But what can be done to combat it?

In simple terms, social inflation is the increase in defendants’/insurers’ claim costs over and above general economic inflation. It is not a new phenomenon. Social inflation occurred in the 1980s, manifesting in the swarm of asbestos and environmental claims/liabilities, and again in the late 1990s/early 2000s in connection with medical malpractice developments. Moreover, social inflation is not unique to the U.S.; it affects economies across the globe.

Causes

Class action filings have increased, nuclear verdicts are on the rise and large settlements are becoming more commonplace. Numerous factors are driving these trends:

• Plaintiffs’ Attorneys – To give credit where credit is due, plaintiffs’ counsel has become increasingly aggressive, coordinated and savvy. Their advertising investment is up considerably, they have embraced technology and social media and they are using the reptile theory quite effectively.
• Legislative Reform – Numerous states have recently enacted laws to not only extend statutes of limitations but actually “revive” previously time-barred claims, such as sexual molestation claims.
• Third-Party Litigation Financing – Increased third-party litigation funding has provided significant capital to plaintiffs’ firms. For more detail, please refer to the previously published Part Two in this series: Social Inflation Is Complicated and Costly – Legal and Regulatory Changes.
• Jury Makeup – Mistrust in large corporations remains, and jurors – particularly millennials – are more than ever aware of social injustices and income inequalities.

Combatting Social Inflation

How do businesses/defendants and carriers combat the effects of social inflation? It is definitely not a simple challenge, but some considerations include:

• Case Evaluation/Communication – Early, candid analysis is critical. Generally speaking, claims/cases do not improve over time. Attorneys get involved, demands escalate, bad faith and time limit demand strategies are employed, etc. Internally, it is important to cultivate a “no surprises” culture. Claims professionals are the constant bearers of bad news and must be comfortable both receiving and delivering it, the earlier the better. Identify the challenging cases early and develop a strategy to attack.
• “Embrace the Suck” – This is an old military expression that counsels one to lean into the suffering and get comfortable being uncomfortable. The claims world is a challenging one. Days are filled with layers of gray, difficult choices, challenging outcomes and associated risk. Outcomes won’t be perfect. Juries are unpredictable, and some losses will be suffered along the way. But it’s important to embrace the process, ensure certain cases are resolved early and identify the right ones in which to invest and bring to trial.
• Talent – The insurance industry as a whole is faced with talent challenges. Unfortunately, insurance does not top the list of most desirable industries for college graduates – they just don’t know what they are missing! Recruiting, training, developing, and retaining top, diverse talent must remain a priority for our industry. Outside counsel is another critical component. It is not only imperative that potentially challenging cases are identified early, but appropriate counsel must be retained; we have to get the right cases to the right attorneys.

See Also: How Social Inflation Affects Liability Costs

Technology to the Rescue?

While still fairly limited in number countrywide, many “nuclear verdicts” – generally defined as those of $10 million and above – share a theme: They too often come as a complete surprise to the policyholder, defense attorney and the insurance carrier. Furthermore, any unexpected trial result carries the potential for a claim department to harvest learnings, find commonalities that may appear again and then apply those learnings to future cases that may contain similar attributes. In the past, an astute claims department may have held a “post- mortem” on such a case, possibly captured a key point or two and then passed that information on to the larger organization. However, such practices have historically brought mixed and inconsistent results.

It has been noted that no industry takes in more data than does insurance, but then does so little with it. Contained within each claim file is a trove of structured and unstructured data. Could analytics and predictive modeling take those data elements and then forecast a range of outcomes that could enable claim professionals to better quantify the “downside” of a catastrophic injury case, or – perhaps even more beguilingly – identify the “outlier” case with unforeseen potential to generate a nuclear award? Developers are working on such data-driven approaches, with great strides expected to be made in the coming years.

Other tools are on the horizon that may further stem the rising tide of social inflation. One such area involves employing analytics to better manage legal expense that, according to one author, consumes between three and eight percent of direct written premium. The ability to better quantify law firm expertise and efficiency would bring a litany of benefits, ranging from being better able to “match” the defense attorney expertise to that of an adversary, to assessing which firms complete discovery most efficiently. Related is the possibility to better tie firm compensation to claim outcomes in a way that would move away from the traditional hourly billing model. Development in this area continues as well, with a handful of products coming to market in recent years and greater refinement expected over time.

The Future

Social Inflation has hit the defense/insurance industry like a large wave in recent years. By refining claim handling practices, recruiting top-flight talent and jumping onto the potential benefits that artificial intelligence and predictive modeling potentially represent, claim departments can address the social inflation tide.

As social inflation has been more widely examined in recent years, it has grown to encompass almost any unfavorable aspect of modern Casualty insurance. However, while many Casualty lines are under strain, some are performing well despite purportedly being susceptible to many of the same forces. Segmenting Casualty lines into those performing well and those under strain, and considering what the well-performing lines have in common that is not shared by the lines under strain, can help define which aspects of social inflation are most important. This information is crucial to formulating an effective response against these damaging influences.

Consider that industry-wide loss ratios have grown steadily over the past 10 years in Commercial Auto Liability (CAL) and Other Liability Occurrence (OLO, which includes Umbrella), but have shrunk in Products Liability (PL). The change in calendar year loss ratios reflects the late development from prior accident years, which highlights unexpected changes in market conditions – such as social inflation. Even though some PL business is written on a claims-made basis, the downward trajectory of calendar year loss ratios is still indicative of improving market conditions for the line. The four largest states – California, Florida, New York and Texas – represent roughly 40% market share in each of these lines and have loss ratios higher than the rest of the states, but loss ratios are moving in the same direction for all states. What is happening in CAL and OLO that is not happening in PL?

To answer that question, it is helpful to put some context around these increasing loss ratios by estimating the dollar impact. If what the loss ratio would have been in recent years without social inflation was known, it could be compared against the actual loss ratio and that difference multiplied by the premium to measure the magnitude. This is impossible, of course, but an approximation based on historical data can be made. One rough estimate of this “pre-social-inflation” loss ratio is the average ultimate loss ratio at 12‑months maturity for the years leading up to the onset of social inflation – widely accepted as around 2016. For CAL, this baseline is 67%, and for OLO this is 63%.

If these loss ratios had continued, instead of the actual loss ratios at the latest valuation, then industry-wide losses would have been more than $3 billion per year lower for CAL and roughly the same amount lower for OLO, or more than $6 billion per year total. It’s impossible to know for certain how these years would have played out under different circumstances, but this gives a rough estimate of the magnitude.

See also: Insurers' Social Inflation Problem

Meanwhile, for PL, every single recent accident year has developed favorably by around $200 million per year, and loss ratios were higher 10 years ago than they are today. Note that the upward trajectory of recent loss ratios is somewhat illusory because it can safely be assumed that recent years will also experience future favorable development similar to prior years. Granted, the fact that some PL business is written on a claims-made basis helps shorten the reporting pattern, but this favorable development is in stark contrast to the deterioration seen in CAL and OLO. This is counterintuitive, as PL would seem to be susceptible to many of the same causes of social inflation that are driving up the CAL and OLO loss ratios, including:

• Nuclear verdicts, because many of the largest verdicts in recent years come from products cases such as weed killer, talc powder, tobacco, car manufacturers and pharmaceuticals.
• Reptile Theory tactics, where a plaintiff’s lawyer appeals to jurors’ emotions by portraying the defendant as a threat to society that demands harsh punishment
• Increased anti-corporate sentiment among jurors

Furthermore, because PL is a much smaller line than the other two, it would not take as much claim activity to have a noticeable impact on results. Various measures of industry-wide rate change suggest that PL rates have not increased as much as other Casualty lines, implying that loss activity, rather than premium adequacy, is to blame. There are many other differences among these three Casualty lines, but one would still expect that they all would suffer if the above judicial phenomena were the leading drivers of social inflation. While the importance of the issues listed above cannot be discounted, other factors appear to be having an even greater impact.

One notable distinction among these lines is the types of injuries sustained. The claims for CAL and OLO – of which Umbrella is a major component – contain a high concentration of auto accidents, where high-speed blunt force trauma injuries result from vehicle operation. PL claims contain a much broader range of injury types, from a wider array of potential hazards, and the PL line is more diversified. For example, if exercise equipment gets 5% more dangerous next year, that only affects a small subset of PL risks, whereas if vehicles get 5% more dangerous next year, that affects all of CAL and much of OLO.

Looking at Gen Re’s Personal Umbrella claim experience provides further insight. Personal Umbrella was selected because it contains fairly homogenous exposures and claim types, is a Casualty line that appears to be affected by social inflation and is an excess cover that captures changes in large claim severity. A key finding was that among claims that hit the Personal Umbrella policy limit, a growing proportion of those claims are coming from non-fatal injuries. This would be expected if improved vehicle safety was preventing fatalities and instead an otherwise-fatal crash resulted only in injury, but National Highway Traffic Safety Administration data suggests this accounts for only a small part of the growth. Instead, a dramatic shift in the make‑up of large claims is occurring. Insurance claims executives have observed a marked increase in non-fatal traumatic brain injuries, and more work is being done to quantify this. It appears that this increase, which would have a substantial impact on CAL and OLO but a relatively minor impact on PL, may be driving much of the social inflation seen across Casualty lines.

Social inflation has had a profound impact on Casualty insurers in recent years and is expected to increase for the foreseeable future. There is still much to learn about social inflation, its causes, and its impacts. Understanding what is driving social inflation is crucial to developing an effective response; for example, is it more important to focus on improved safety to reduce injuries, or on tort reform to reduce bias in the judicial system?

While many connected factors contribute to social inflation, this analysis suggests that an increase in non-fatal auto accidents may be one of the most influential. Unless specific appropriate actions are taken to address the recognized causes of social inflation, Casualty insurance results will continue to suffer.

In the U.S., the property and casualty insurance marketplace, along with the rest of the insurance industry, faces a wide range of issues arising out of the COVID‑19 global pandemic. Meanwhile, social inflation continues to present significant long-term challenges to those insurers.

The causes of social inflation are numerous and the source of much debate among insurance professionals, industry advocates, consumer advocacy groups and legal professionals. From a legal and regulatory perspective, the simplest description of social inflation is legislative and litigation changes that shape and ultimately affect insurers’ legal liabilities and claims costs. These transformations have accelerated over the past five years and appear poised to continue for the foreseeable future. There is no greater contributor to social inflation than legal and regulatory changes. This installment of the Gen Re/NAMIC social inflation series focuses on those changes and offers potential responses for insurers and their reinsurers to consider.

Third-Party Litigation Funding

A rise in third-party litigation funding is often identified as a leading cause of social inflation. There are various litigation funding business models, but in all of them a funding firm provides working capital to contingency-fee plaintiff firms.

Three factors have fueled an increase in such litigation:

• The proliferation of funding firms combined with the appetite of the plaintiffs’ bar for capital to support case filings
• The hiring of testifying experts
• The use of sophisticated technology to aid trial presentations

In addition, these three factors have given plaintiffs and their lawyers the capacity to hold out for larger recoveries while increasing case investment returns.

To date, there has been no meaningful legal or regulatory check on the growth of litigation funding or its use in litigation. While a number of state legislative measures – which could have meaningfully addressed this concern – emerged in 2020, attempts to require disclosures of litigation funding arrangements have had difficulty gaining traction. Even more concerning is the recent development in Arizona and Utah allowing non‑lawyer investment in law firms. If these trends continue unchecked, the plaintiffs’ bar will continue to have ever-increasing access to capital to pursue litigation against corporate targets, including the insurance industry.

Statutes of Limitation

Another disturbing trend concerns legal and legislative attempts to circumvent statutes of limitation, which have long been an accepted and critical feature of the U.S. legal system. Legally established limitation periods to pursue a claim provide certainty with regard to the time period in which claims can be brought. The reasons for statutes of limitations are familiar: Not only do they provide certainty, but they avoid serious questions about the reliability of claims asserted or evidence offered many years after an event allegedly occurred. Nevertheless, a broad assault on limitation periods has occurred in recent years as many states have taken action to “revive” the period in which claims can be brought, by either extending statutes of limitation or passing legislation allowing claimants to “revive” claims that were previously time‑barred.

While indisputably well-intentioned, attempts to address the personal tragedy experienced by some individuals may prove, from a purely economic standpoint, to be a short-sighted reaction to arguably isolated incidents. Not only do such measures present constitutional questions and lead to many claims of dubious merit, but they also undermine a core principle of the American legal system and raise broader concerns that American businesses – including by extension insurers and reinsurers – will be faced with concerns of perpetual liability exposure.

Public Nuisance Theory of Liability

In addition to the many challenges already facing the property and casualty insurance industry in the U.S., it faces the growing acceptance of a public nuisance theory of liability in litigation relating to opioids, talc, climate change and, more recently, claims of alleged COVID‑19 infection in the workplace. The essence of these claims is that a product manufacturer, distributor or employer has engaged in legally permissible activity but has ultimately created or contributed to a public health crisis by engaging in that activity, and therefore needs to be found liable to “fund” the alleged societal cost. Plaintiffs argue that traditional requirements of causation should be disregarded because of the grave social issues involved.

Not only does this approach eviscerate longstanding legal principles, and, in many instances, bargained‑for contract provisions, but it effectively asks courts and juries to supplant legislators and regulators. Long-established causes of action already exist and allow plaintiffs to seek redress for alleged injuries or for a party’s violation of a duty or failure to adhere to a law or regulation. However, bypassing these established legal standards to create an avenue for recovery where none previously existed will harm not only businesses but the insurers and their reinsurers who provide needed support.

See Also: Keys to Limiting Litigation Liability

Liability Presumptions

In a related development, there is a growing trend of states enacting liability presumptions, particularly – though by no means exclusively – with respect to liability for alleged COVID‑19-related losses or illnesses. Pressure is growing in a number of states to enact more of these presumptions or to extend those already in place. Some of these measures have been effectively challenged in the courts, while others have been headed off by effective advocacy concerning the long-term ills of such presumptions, particularly where they look to rewrite bargained‑for written contracts. The insurance industry needs to continue to provide awareness regarding the risks of these measures and support advocacy efforts to prevent additional legislation that features presumption of liability.

Liability Waivers

Equally concerning is the declining enforcement of liability waivers. Where no reckless or intentional conduct has taken place, liability waivers – clearly written, identifying known risks and agreed upon by knowledgeable parties – should be enforced.

Consensus is lacking among insurance industry commentators as to whether the roll-back of tort reform measures in certain states, such as Missouri, have contributed to the rise in social inflation in recent years. Regardless of the degree of the impact, tort reform in the 1980s and 1990s – such as the establishment of caps on non‑economic damages – helped to curb the last major bout of social inflation in the U.S. Limits on non‑economic damages have proven to be the key to stemming “nuclear” verdicts that drive social inflation.

In the U.S., the property and casualty insurance industry can make significant strides toward reversing the serious threat of ballooning social inflation by instituting four strategies:

• Advocating for legislation aimed at the regulation of third-party funders that fuel growth in litigation
• Adhering to accepted legal principles
• Promoting awareness of the long-term harm of liability presumptions
• Encouraging renewed focus on tort reform measures

There is no simple cure to the ills of social inflation, but a sustained and consistent effort by insurers, and the advocacy groups they support, can start to address some of the symptoms.